China and Asean Grow Closer

While tensions between China and its two largest trading partners, the U.S. and the European Union, have increased in recent months, China is enjoying something of a honeymoon with trading partner No. 4, Asean.

In January, China’s exports to its Southeast Asia neighbors counted for around one third of that to the EU, while only eight months later, exports to Asean countries had grown to the equivalent of about half of exports to the EU.

China’s Premier Wen Jiabao is heading a high-profile delegation to this weekend’s summit of the Association of Southeast Asian Nations in Hua Hin, Thailand, about two months before free trade between China and six Asean countries becomes effective. Meanwhile, at an annual China-Asean summit taking place in Nanning in southern China, China’s Vice Premier Li Keqiang said China’s deepening economic and trade ties with Asean countries “will push the world economy to recover” from the financial crisis.

However, some love may be lost between the two sides as China’s trade surplus against the Asean countries grows.

Reversing trade deficit last year, China moved to a trade surplus against the Asean countries of $74 billion in the first nine months, even higher than its $55 billion trade gap with the U.S.

“China’s huge surplus to Asean needs to be adjusted, but it is very difficult to reverse the trend soon,” said Zhang Yunling, a renowned academic on China-Asean relationship at a government think tank, the Chinese Academy of Social Sciences.

This year’s trade surplus is partly due to lower prices of energy and commodity products, which used to be China’s major imports from Asean countries, he said. Mr. Zhang called these “temporary factors,” unlikely to continue to interfere with China-Asean trade.

Indeed, economist are confident that trade between China and Asean countries will grow faster than that between China and its traditional trade partners of EU and the U.S.

David Li, director of Tsinghua University’s Center for China in the World Economy, said Asean countries will likely surpass Japan to become China’s No. 3 trading partner in the future.

Although the EU and the U.S. will remain China’s top two trading partners, China will need to adjust its structure of export destinations, he said.

UPDATE: A previous version of this item incorrectly listed China’s trade surplus with Asean and the U.S. in trillions instead of billions.

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